S&P lowers Arcapita credit ratings

Manama, January 29, 2009

S&P said that it has lowered its long and short-term counterparty credit ratings on the Bahrain-based investment bank to 'BB+/B' from 'BBB/A-2' and placed the long-term rating on CreditWatch with negative implications.

And the agency warned that if the bank did not improve its liquidity profile and leverage do not improve materially in the near future, the ratings could be lowered further.

In response, Arcapita said it had attracted funding of $300 million and was in the process of securing a significant equity increase from certain sovereign wealth funds.

'Although we are disappointed at the result of S&P's review, we believe that the current uncertainty surrounding the private equity sector globally has been a dominant factor in their decision,' said Arcapita chief executive officer Atif A Abdulmalik.

'Financial markets everywhere continue to suffer from the extreme conditions brought on by the ongoing challenges in the credit markets, as well as the deteriorating global economic environment.

'In recent months, we have been successful in attracting $300m in two-year deposits from a group of strategic investors, and we are in the process of securing a significant equity increase from certain sovereign wealth funds.

'These commitments have been made by investors with a close understanding of the Arcapita business model, and their investments demonstrate a high degree of confidence in the opportunities and growth that Arcapita continues to offer over the medium to long-term.

'Our leverage ratio is modest at approximately 2.2, and our capital adequacy is at 17.5 per cent, almost 50pc more than the minimum required by the Central Bank of Bahrain.

'Through rigorous investment standards, Arcapita has built up a high quality portfolio of assets that are well diversified by asset class, currency and geography,' he said.

'We continue to enjoy close relationships with our network of investors throughout the GCC, and notwithstanding our historically conservative approach to the management of our balance sheet, we have delivered an impressive track record of profitability since inception,' he said.

'In the short term, profitability in the private equity sector is likely to suffer across the board, but I am pleased that Arcapita has delivered profits for the first half of our current financial year, and I am very confident that we will grow our profits further by the end of our financial year in June.'

'At the same time, we believe that the value of Arcapita's own investments - mainly in private equity and real estate - could decline in value given current market conditions, like other private equity firms.

'We view Arcapita's leverage as high. We understand that Arcapita made certain investments last year that it was not able to fully place with customers that triggered a decline in liquidity and an increase in investment leverage.

'Arcapita's capacity to implement its planned set of measures to reduce leverage and improve its liquidity position will be critical for the ratings in the short term.

'If Arcapita's liquidity profile and leverage do not improve materially in the near future, the ratings could be lowered further,' he said.

'We expect to resolve the CreditWatch status in the coming two months, following consideration of the above factors.'-TradeArabia News Service